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Unemployment down again - but more bad news ahead?

A surprise drop in the jobless count - though even the Government isn't claiming we're through the worst.

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Published: 17 Mar 2010

Last Updated: 31 Aug 2010

Today’s news that unemployment was down again in the three months to January – the jobless count fell 33,000 to 2.45m - might seem like an unexpected boon for the Government, particularly as it gears up for an Election campaign. But although this has to count as good news, we’re not sure it really raises hopes of a recovery, as some reports have suggested today. For one thing, the headline figure is flattered by people opting out of the job market altogether. And given how limp our recovery looks likely to be, we suspect this figure will be heading up again soon – particularly when the cull begins of the UK’s 6m public sector jobs…

There were some reasons for cheer today. The overall employment rate inched down to 7.8%, while the number of people collecting unemployment benefit in February (which was expected to increase) actually fell by 32,300 – the biggest month-on-month drop in more than a decade. The number of 18-24 year olds claiming benefits also fell, for a fourth consecutive month. It’s clear that the job market has weathered the recessionary storm better than expected – companies have avoided job cuts by introducing pay freezes, part-time working, unpaid leave and so on. And that’s good, because it means they can hang on to their talent in the longer term.

However, it’s also true that lots of people have withdrawn from the job market altogether, either to study, or look after their kids, or work for themselves. The number of economically inactive people actually rose by almost 150,000 during the period - to 8.16m - rather flattering the overall unemployment rate. Equally, the fall in the claimant count may be partly because some people reached the end of their six-month Jobseeker’s Allowance period and aren’t entitled to any more benefit.

Indeed, there were two stats buried away in today’s figures that we found particularly worrying. First, the number of people actually working in the UK fell by 54,000 to 38.86m – a 13-year low. And second, while private sector employment fell by 61,000 in the last quarter of 2009, public sector employment actually rose by 7,000 – including 22,000 new jobs in central government! So public sector jobs have continued to prop up the employment figure.

Now we’re not sure whether civil servants are padding out their departments to insulate them against the coming cuts (which would be a pretty disgraceful state of affairs). But either way, the public sector employs 6.1m people in the UK. Assuming that a sizeable proportion of these face redundancy if the axe falls on public spending, it seems very unlikely that we’ve seen the worst of unemployment yet. Sorry Gordon.